The Energy Space

EOXLive

*On December 27th, EOXLive published a 2013 outlook for crude oil and natural gas. If you have not received it or would like a copy, please email tpawlicki@eoxlive.com.

Energy Price Outlook

WTI is showing difficulty in trading above the $94.00/bbl price level, while Brent is doing the same near $113.00/bbl. The oil markets may continue to remain range-bound in the near-term, as influencing factors are somewhat mixed. The upside will focus on improving economic data, buying by managed money accounts, and fresh refinery issues with Motiva. The downside will look to a potential rebound in today's DOE data, potentially weaker demand in light of higher prices, and from yesterday's EIA report. We analyze the report on pages 3 & 4 below. We would maintain our June WTI-Brent trade entered on Friday morning at -$14.25 with a target at -$8.00.

Brent settled 54c/bbl higher yesterday while WTI finished 4c/bbl lower. Both markets moved higher early in the session based on improved European economic confidence and slight gains in European equity markets. Eurozone confidence rose to 97.0 from 85.7 previously, and is adding to a developing narrative that Europe may be slightly past the worst of its debt crisis and economic difficulties. The easing of Basel III terms on Monday was another favorable event. Both WTI and Brent then weakened through midday due to a falling U.S. stock market, but Brent held higher on the day due to the more favorable international economic outlook. Motiva's Port Arthur refinery announced yet another shutdown of its new crude unit after a replacement clamp failed. The prospect of shortages of refined products in the Gulf Coast region and especially in distillates caused those markets to trade firmly throughout the session.

The EIA's Short-term Outlook was a bit of a concern in our view, despite a nice gain in 2014 demand projections. The monthly report showed an increase in 2014 global demand of 1.35 mb/d and compared to 2013's growth of 0.94 mb/d and 2012's 0.88 mb/d. One of our takeaways was that the slow growth in demand witnessed between 2010-2012 may be nearing an end. By the same token, however, the EIA forecasted supply to grow by 1.70 mb/d, with two-thirds of that coming from growth in U.S. shale production. The report admitted that U.S. shale output had outpaced its expectations made a year earlier, which in our mind, may suggest that shale possibilities aren't fully known, and could surprise once again this year. Additionally, the oil market's supply/demand balance goes from a deficit of 100 kb/d in 2013 to a surplus of 250 kb/d in 2014. The long-term prospect of growing supplies could help put a cap on prices even in the near-term.

Natural Gas

February natural gas settled 4.8 cents lower and led the futures price curve on the downside. The market reacted to a warming in temperatures from what was previously expected to be below-normal temps across the western two-thirds of the country. NOAA's maps were generally unchanged yesterday afternoon, however, Commodity Weather Group said that the area of below-normal temps between Jan 18th-22nd may be confined to just the northern tier of the country rather than the majority of the central U.S. At the same time, NOAA said that 2012 was the warmest year on record in the lower-48 states. The average was 55.3 degrees, which was 3.2 degrees higher than the 20th century average.

The EIA's monthly report yesterday was somewhat mixed for prices, as there was something in it for both sides. The negative side may focus on the upward revision to the 2013 supply/demand surplus to 1.36 bcf/day from 1.12 bcf/day previously, while the bullish aspect came in the potential shrinking of the surplus to 0.45 bcf/day in 2014 from 2013's 1.36 bcf/day. The EIA also raised its 2013 price forecast slightly to $3.74 from $3.68.

In the end, the market should be most susceptible to weather developments, and they're still slightly on the warm side. Large funds continue to position themselves on the short side, according to the COT data, and Monday's rally reversed after holding at resistance near $3.32. We would maintain a negative bias until there's any significant and lingering cold weather in the forecast....1555 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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